Saving for Retirement Is a Marathon, Not a Sprint

Typically, younger workers don’t have big salaries, but when it comes to investing for their future, they have something even more valuable: time.

Investing even small amounts can add up to sizable sums over decades. Take a 25-year-old worker who earns $50,000 a year and saves 10% of their pay annually. In 40 years, they could save nearly $1.2 million, assuming a 7% annual investment return and a 2% annual raise, according to Bankrate.com.

While some younger workers might be repaying student loans or saving for a down payment on a home, they may be able to manage those more immediate goals and save for retirement at the same time. After all, building a nest egg to last throughout your retirement isn’t a sprint, it’s a marathon. Check out some tips to get you to the finish line.

Save at work. An easy and tax-friendly way to save for retirement is through your employer’s 457, 401, or 403(b) plan. Your contributions ― a maximum of $20,500 in 2022 if you’re under age 50 ― are deducted from your paycheck before you’re taxed on the money. This reduces your taxable income, so you pay less in taxes as you save. Your invested money grows tax-sheltered, although you’ll pay taxes on it later when you take withdrawals. Some employers also match all or part of workers’ contributions.

Maximize contributions. Ideally, workers would annually save 15% of their gross pay for retirement, including any employer match. If you can’t swing that yet, save at least enough to get your employer match, which is free money. Then increase your contribution each year by, say, one or two percentage points, until you reach your target.

Invest with a long-term view. Over the long haul, stocks tend to outperform other asset classes, such as bonds. And while stocks can be volatile, young investors have plenty of time to weather down markets. In fact, by regularly investing a fixed sum in your workplace plan, you’re practicing a strategy called “dollar-cost averaging.” With this approach, you buy more shares when investments fall in price and fewer shares when they’re more expensive. Learn more about dollar-cost averaging at Take the Guesswork Out of Investing in Volatile Markets.

Keep it simple. You may have other retirement savings such as a 457 account from a prior job. Consolidating your accounts can help reduce paperwork and having to monitor multiple accounts. If your plan allows, you may be able to roll your assets into your MissionSquare account. To get started, log in to your account, click Overview, then select Roll Over Your Money.

Avoid cashing out. If you leave your job, you have a few options for handling your retirement account. You may be able to leave the account in your former employer’s plan, transfer it to a new employer’s plan, or roll it into a traditional IRA to avoid triggering taxes. If you cash out, you’ll owe income taxes on the money. Plus, you’ll owe a 10% penalty if you’re under age 59½; this rule doesn’t apply to 457 plan assets.